saas and the cloud ten years in
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1Confidential
Rory O’Driscoll, Managing DirectorScale Venture Partners
Software as a Service & Cloud Computing:The Reality & The Opportunity
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2Confidential
SaaS: An Understood Concept
Average Worldwide Search & News Traffic
Source: Google Trends.
SaaS
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3Confidential
Cloud Computing: Newer and Murky
Average Worldwide Search & News Traffic
Source: Google Trends.
SaaS Cloud Computing
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4Confidential
Lady Gaga
Average Worldwide Search & News Traffic
SaaS Cloud Computing Lady Gaga
Source: Google Trends.
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5Confidential
Start with the Person Who Has the Money
$50B $70B
“Bill the Business Buyer”
“Ivan the IT Guy”
$20B
“Connie Consumer”
Annual Software Spend
Consumer Business
Source: IDC.
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6Confidential
Application
Infrastructure
Consumer Apps & Infrastructure:Running on a PC
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7Confidential
Business Apps & Infrastructure in the 1990s:Running in a Data Center
“Bill” Business Buyer “Ivan” IT Guy
Application
Infrastructure
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8Confidential
Business Apps & Infrastructure Today:Running in the Cloud
“Bill” Business Buyer “Ivan” IT Guy
SaaS Cloud
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9Confidential
Mainframes
Minis
PC
Client/Server
Basic Internet
I.T. Has Re-Invented Itself Before
1960s
1980s
1990s
1970s
2000s
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10Confidential
Application Software Architecture Model:Before & After SaaS
Bill buys it.Ivan makes it run.
Company A
SW
HW
DatacenterVendor
Company A
Company B
Bill buys it.Ivan never knows.
HW
SW
Client Server SaaS
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11Confidential
Application Software Business Model:Before & After SaaS
Sales / marketing 50% of all expenses
Small number of big deals Deals close last day of quarter Arduous implementation
Sales / marketing 50% of all expenses
Large number of small deals Business model high quality SW Steady, predictable business
Bill
$ $1,000,000
Sales Guy
SOFTWARE
!
Bill
?PURCHAS
E
“Try Before You Buy”Plan A: $100 / mo.
Plan B: $199 / mo.
http://
Client Server SaaS
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12Confidential
SaaS: The Wisdom of a Decade
A model. Not a market.
Leverage the architecture.
GAAP: Unflattering to annuity business.
Compounders not rocket ships.
Play to win.
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13Confidential
<$1B $1-5B $5B+
$40bn In Value Generated by SaaS Winners
2010 Market Cap
LogMeinRightNow
TechnologiesConstantContact
DealerTrackHoldings Vocus Kenexa
DemandTecSPS
Commerce Convio
Postini Frontbridge ScanSafe
Zantaz Paycycle ExactTarget
Responsys Eloqua Indeca
Zendesk
Taleo Corp. Athenahealth
NetSuiteOmniture
RealPage SuccessFactors
ConcurTechnologies
Salesforce.com$17.5B
Source: Public financials, Capital IQ, industry research.
WebEx
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14Confidential
SaaS: Where from Here?
Land of a thousand niches.
Surprised by upside.
Consumer sets the tone.
Technology drives the potential.
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15Confidential
Architecture Evolving To Cloud Based I.T.
Ivan buys software + hardware.Ivan makes it work.
Ivan buys a service.Vendor makes it work.
Company A
SW
HW
SW HW
DatacenterCompany A
Cloud Services Vendor
Company B
HW
SW SW SW
Vendor Vendors
HW SW SW
IT Before the Cloud IT in the Cloud
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16Confidential
Virtualization Enables the Cloud
Traditional Architecture
Virtual Architecture1 Company / Server
Many Companies / Server
Virtualization allows multiple companies to share infrastructure
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17Confidential
Where Is the Cloud World Now?
?“ Where is cloud
most valuable?”
“ Will companiesreally adopt it?
”
“ What level of cloudservice do people want?
─ PAS, SaaS, IAS
”“ What does this mean
to equipment vendors? Some panic?
”
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18Confidential
11mm PDFs Created in One Day
4 TB Data 100 Nodes 11 Million PDFs
100 instancesx 24 hoursx $0.10 / Hr= $240
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19Confidential
5000 Servers Commissioned in 3 Days
Numberof EC2
InstancesLaunch of Facebook modification
Steady state of ~40 instances
Amazon EC2 easily scaledto handle additional traffic
Peak of 5000 instances
Animoto Scales to Meet Demand for Photo Presentations
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20Confidential
Will People Really Adopt It?
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21Confidential
Cloud Services Vendor
HW
SW SW SW
Why Equipment Vendors Should Be Nervous
Company A Company B
Vendor
HW
Vendors
SW SW
HW
SW
Vendor
HW
Vendor
SW
Company A
Datacenter
I.T. Before the Cloud
I.T. in the Cloud
Customer concentration
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22Confidential
Winners: SaaS and Cloud
<$1B $1-5B $5B+
SaaS
Cloud
LogMeinRightNow
TechnologiesConstantContact
DealerTrackHoldings
Vocus Kenexa DemandTecSPS
Commerce
Convio, Inc.Postin
i Frontbridge ScanSafe
Zantaz Paycycle ExactTarget Responsys
Eloqua IndecaZendes
k
Taleo Athenhealth NetSuite Omniture
RealPage SuccessFactorsConcur
Technologies
Salesforce.com$20B
VMWare, Inc.$40B
Heroku Rightscale Go Grid Cloudera
CloudkickEucalyptus
System Nimsoft Engine Yard
Data Domain
Isilon
3PARRackspace Holdings
$40bncreated
$50bncreated
WebEx
Source: Public financials, Capital IQ, industry research.
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23Confidential
Clouds on the Horizon
Clouds are a large pool of easily usable and accessible virtualized resources (such as hardware, development platforms and/or services). These resources can be dynamically reconfigured to adjust to a variable load (scale), allowing also for an optimum resource utilization. This pool of resources is typically exploited by a pay-per-use model in which guarantees are offered by the Infrastructure provider by means of customized SLAs.
— Vaquero, Rodero-Merino, Caceres, Linder
“ ”
… outsourced, pay-as-you-go, SaaS, on-demand, somewhere in the Internet, etc.
… using the internet to allow people to access technology enabled services.Those services must be massively scalable.
“ ”
“ ”
We've redefined cloud computing to include everything that we already do. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?
— Larry Ellison
“ ”
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24Confidential
Near Free Computing
March 2009 January 2010 September 2010
10 Amazon Web Services Price Cuts in 18 Months
Lower ReserveInstance PriceAug. 19, 2009
EC2 PriceReduced
Oct. 26, 2010
Lower S3 and EU Windows
Dec. 2, 2009
CombinedBandwidth
Mar. 25, 2010
CloudFront Price Reduction
June 7, 2010
Free Tier and Increased SQS
LimitsJune 30, 2010
High MemoryPrice ReducedSept. 1, 2010
Reserve Instances
Mar. 12, 2009
Data TransferFeb. 1, 2010
Spot InstancesDec. 13, 2009
Source: AWS announced price cuts.
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25Confidential
Cheap Energy (1900s)Cheap Computing (2000s)
Free consumer services.
Start ups abound; IT not a barrier.
Connecting services in the cloud.
Your stuff is in the cloud.
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26Confidential
The Pain of GAAP + a Sales Rep
$s in Thousands Year 1 Year 2 Year 3 Year 4 Year 5
New Bookings $200 $700 $1,200 $1,400 $1,500
Renewal Bookings
- $150 $700 $1,800 $3,000
Total Bookings $200 $850 $1,900 $3,200 $4,500
Revenue $50 $500 $1,400 $2,600 $4,000
Operating Income ($200) $(150) $ - $300 $700
One New Rep = $200K Loss in Year One;$700K Profit by Year Five
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27Confidential
The Pain of GAAP Per Sales Rep
Year 1 Year 2 Year 3 Year 4 Year 5$50
$500
$1,400
$2,600
$4,000
-$200 -$150
$0$300
$700
Revenue
Operating Income
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28Confidential
Compounders Not Rocket Ships
Time Period Year 1 Year 2 Year 3 Year 4 Year 5
5-Year CAGR
Omniture 2003-08 138% 108% 86% 79% 107% 103%
SuccessFactors 2005-10 150% 95% 77% 37% 35% 74%
ExactTarget 2005-10 58% 54% 51% 32% 41% 47%
Responsys 2005-10 35% 62% 33% 33% 41% 40%
SalesForce 2005-10 60% 51% 44% 21% 27% 40%
Netsuite 2005-10 85% 62% 40% 9% 16% 40%
WebEx 2001-06 72% 35% 32% 24% 23% 36%
Concur 2005-10 35% 33% 67% 15% 18% 32%
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29Confidential
Invest to Win
Profit
Time
Loss
Company X
ExactTarget
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30Confidential
Winning in SaaS
Web Analytics#1 Omniture - $1.8B
#2 Webside - $.3B
Web Conferencing#1 WebEx - $3.6B
#2 Placeware - $.2B
CRM#1 Salesforce - $17.5B
#2 X - $.1B
Distribution + Technology
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31Confidential
As hot as it is, remember…
It’s still no Lady Gaga.
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32Confidential
Rory O’Driscoll, Managing DirectorScale Venture Partners
Software as a Service & Cloud Computing:The Reality & The Opportunity